Category - Fractional Ownership

How Should You Invest in Fractional Ownership?: A Step By Step Guide

September 16, 2024
Mohit Bali
Fractional Ownership
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Two investors visiting a commercial property they partially own through fractional ownership
7 minutes read

Explore the essentials of Fractional Ownership, from key concepts and benefits to risk management and platform selection. This is your step-by-step guide to smarter real estate Investing.

Fractional ownership in real estate has gained significant traction as an innovative way for individual investors to gain exposure to high-value commercial properties. Unlike traditional real estate investments, where one must purchase a property outright, fractional ownership allows multiple investors to collectively own a share of the property. Each investor holds an equity stake based on their contribution, making it a more accessible and flexible approach for those looking to diversify their portfolios without the high capital requirements.

This model is particularly popular in commercial real estate, such as office buildings, retail spaces, or industrial complexes, where the property values are typically beyond the reach of individual retail investors. By pooling resources, fractional ownership democratises access to lucrative real estate assets, traditionally reserved for institutional investors

Nevertheless, while fractional ownership is an attractive option, it’s essential to approach it with a well-informed strategy. To maximise returns and minimise risks, investors need to take a systematic approach to evaluating and managing their investments. Read ahead to discover the key steps involved in intelligent investing in fractional ownership.

Step 1 – Research the Concept of Fractional Ownership

A good starting point is to familiarise yourself with the concept of fractional ownership, along with its benefits and potential risks.

What is Fractional Ownership?

Fractional ownership allows multiple investors to collectively own a portion of a real estate property. Unlike traditional real estate investments where one person owns the entire property, fractional ownership divides the property into smaller shares. This model is particularly useful for investors looking to enter the market with a lower initial capital.

For a more in-depth explanation of how fractional ownership works and how it differs from traditional real estate, you can visit our Comprehensive Guide to Fractional Ownership.

Benefits of fractional ownership real estate investments

  • Affordability: Invest in high-value properties without the full purchase price.
  • Portfolio Diversification: Spread your investment across different properties, reducing risk.
  • Professional Management: Most fractional ownership models include professional property management.

Risks of fractional ownership real estate investments

  • Limited Control: Investors typically have limited say in the management of the property. Although they do have voting rights with regards to selling the property.
  • Liquidity Issues: Selling your share can be more challenging than traditional property sales.
  • Platform Dependence: The success of your investment can rely heavily on the platform facilitating the ownership.

If you’re interested in a deeper dive into the benefits and risks associated with fractional ownership, head to our guide here.

Types of Fractional Real Estate Investments

There are two main types of fractional real estate investments: commercial and residential properties. Commercial properties often generate higher rental yields, while residential properties can offer more stability. Investors also have the choice between existing properties and new developments, each with its own pros and cons.

For detailed insights on the different types of fractional ownership investments, check out this comprehensive guide.

Step 2 – Evaluate Your Financial Position and Goals

Lets’ explore how to assess your financial readiness and define clear investment goals to ensure fractional ownership aligns with your broader financial strategy.

Determine Your Investment Budget

Before diving into fractional ownership, it’s crucial to assess your available capital. Understanding how much you can comfortably invest in real estate is key to ensuring you don’t overextend your finances. A general rule of thumb is to allocate a portion of your total investment budget specifically for fractional ownership, keeping in mind other financial obligations and investments.

For more guidance on how to budget for fractional ownership, consider how much you can invest without affecting your liquidity and other investments. Typically, a balanced approach ensures you’re not putting all your capital into a single asset.

Clarify Your Investment Goals

Once you have a clear sense of your budget, the next step is to define your investment objectives. Are you aiming for short-term gains or long-term appreciation? Fractional ownership can serve both goals, depending on the property and market conditions. Some investors prioritise rental income, while others seek capital appreciation over time. It’s also important to assess your risk tolerance and how this investment fits into your broader portfolio. Diversification is a key advantage of fractional ownership, so understanding your appetite for risk will guide you toward the right property type.

Evaluating your financial position and aligning it with your goals ensures that your investment is not only feasible but also aligned with your broader financial strategy.

Step 3 – Choose the Right Fractional Ownership Platform

Here are a few things to be on the lookout for:

  1. Ensure Regulatory Compliance: The platform you choose should ideally have a portfolio of past opportunities (real estate) that are RERA compliant. These legal protections ensure your investment is safeguarded and the platform operates with accountability. Most of the fractional ownership platforms in India are in the process of transitioning to SM REITs structure to comply with the regulations that were introduced on March 8, 2024 – SM REITs.
  2. Research Platform Reputation: Look into the platform’s track record, investor reviews, and financial health. A well-managed platform with a solid history of delivering consistent returns is key to minimising risk.
  3. Check for Transparency in Fees and Management: Understanding the fee structure is essential. Make sure the platform is transparent about how fees are charged, how rental yields are divided, and what ongoing management processes are in place.

WiseX, India’s first fractional ownership checks all these boxes!

WiseX ensures your investment is protected. With over INR 500 crore in assets under management and a strong portfolio of commercial properties, WiseX has a proven track record of delivering returns. The platform also offers full transparency regarding fees and management, allowing you to invest with confidence and clarity.

Step 4 – Select the Right Property

In this section, we’ll guide you through selecting the right property by examining relevant factors:

Property Type and Location

When it comes to fractional ownership, choosing between commercial and residential properties is a key decision. Commercial properties generally offer higher rental yields but may come with more market volatility, while residential properties can provide stable returns with lower risk. Beyond property type, the location is critical. Prime areas tend to deliver better rental income and long-term appreciation, making them ideal for investors seeking consistent returns and capital growth.

Evaluate Rental Income and Financial Projections

Before making an investment, it’s important to thoroughly assess the property’s rental income potential. Review the property’s historical performance if available, and study financial projections based on market trends. Doing so allows you to understand the expected rental yield and appreciation over time. Reliable platforms will provide transparent financial data, making it easier to evaluate potential returns.

New Developments vs. Existing Properties

Investing in new developments or pre-construction projects can offer early access to properties at lower costs but may carry more risks, such as construction delays. On the other hand, existing properties come with a track record and offer immediate rental income. Weighing the risks and expected timeframes for returns is crucial for selecting the option that best aligns with your financial goals.

Step 5 – Legal Due Diligence and Documentation

Let’s go through the importance of reviewing ownership structures, ensuring clear exit strategies, and understanding the tax implications associated with fractional ownership investments.

Review the Ownership Structure

In fractional ownership, properties are often held through Special Purpose Vehicles (SPVs) or Real Estate Investment Trusts (REITs). Understanding how these structures work is vital for knowing your legal rights and obligations as a co-owner. Ensure the platform offers clarity about how the ownership is divided and how decisions are made regarding the property.

Ensure Clear Exit Strategies

Liquidity is another crucial aspect of fractional ownership. Before investing, review the platform’s policies on selling your shares. Look for platforms that provide access to secondary markets where you can sell your stake if needed. Be cautious of contracts with hidden clauses that may restrict your ability to exit the investment smoothly.

Clarify Tax Implications

Understanding the tax implications of your investment is essential. Rental income earned through fractional ownership is subject to taxation, as are any capital gains realised upon selling your shares. Consult with a tax advisor to fully understand your obligations and how they affect your overall investment returns.

Step 6 – Manage Your Investment Post-Purchase

​​Tracking Your Investment Performance

After purchasing a fractional ownership stake, it’s important to regularly monitor the property’s performance. Many platforms offer tech-enabled dashboards that allow you to track rental income, expenses, and updates on the property’s condition. Conduct periodic reviews to ensure your investment is performing in line with your expectations.

FAQs

Q.1. How much money is required to invest in fractional ownership?

The minimum investment amount for fractional ownership can vary widely depending on the property and the platform. Generally, fractional ownership allows investors to participate with relatively smaller amounts compared to direct property ownership. Typical minimum investments can range from INR 5 lakhs to INR 50 lakhs or more, depending on the value of the property and the structure of the investment. This accessibility enables individuals with moderate capital to invest in high-value properties that would otherwise be out of reach.

At WiseX, you can start investing with a minimum of just INR 25 lakhs.

Q.2. Can I sell my fractional ownership shares easily?

The ease of selling fractional ownership shares largely depends on the platform and the specific investment terms. Liquidity can be a concern, as not all platforms offer a straightforward secondary market for reselling shares. Some platforms facilitate secondary market transactions, allowing you to sell your shares to other investors. However, the process can sometimes be slow and may involve additional fees. It’s important to review the platform’s exit strategy policies and understand any potential restrictions or conditions associated with selling your shares.

Q.3. What taxes apply to fractional ownership income?

Fractional ownership income is subject to taxation, including:

  • Rental Income: The rental income you receive from fractional ownership is taxable under the Income Tax Act. This income is categorised as “Income from House Property” and is subject to tax based on your applicable income tax slab rates.
  • Capital Gains: If you sell your fractional ownership shares and realise a profit, the capital gains are also taxable. Short-term capital gains (for assets held less than three years) are taxed at a higher rate, while long-term capital gains (for assets held longer) benefit from lower tax rates. The exact tax rate depends on the holding period and other factors.

Q.4 How do I know if a fractional ownership platform is trustworthy?

To determine if a fractional ownership platform is trustworthy, consider the following tips:

  • Research Reputation: Look into the platform’s track record, including investor reviews, financial health, and historical performance. A reputable platform will have a proven history of successful investments and satisfied investors.

Assess Transparency: Evaluate the platform’s transparency regarding fees, management processes, and ownership structure. A trustworthy platform will provide clear and detailed information about all aspects of the investment.

Bottom Line 

Now that you have a comprehensive understanding of fractional ownership and the steps involved in making a smart investment, here are some resources to further guide your journey:

  1. Take a look at WiseX’s commercial real estate fractional ownership opportunities.
  2. Book a call with a dedicated investment manager to learn more about the opportunities available.

Explore our articles on numerous subjects related to alternative investments.

A Comprehensive Guide To Fractional Ownership

August 6, 2024
Mohit Bali
Fractional Ownership
Add comment
13 minutes read

Read through this guide to understand all there is to know about fractional ownership – its history, evolution, distinction from REITs and SM RIETS, legal framework, regulations, benefits and risks associated, tips for first time investors and FAQs.

Are you eager to understand how fractional ownership can diversify and enhance your investment portfolio?

Fractional ownership investments are rapidly becoming essential for retail investors. They offer steady, consistent returns and access to premium assets previously reserved for ultra-high-net-worth individuals, driving their increasing popularity.

To navigate this investment space effectively, it’s crucial to deepen your understanding of the concept. This article covers the topic along with several key considerations including the history and evolution of fractional ownership, the nature of fractionalized assets, the legal framework, the associated rewards and risks and much more.

Contents: 

  1. What is Fractional Ownership?
  2. Evolution of Fractional Investing in India
  3. Assets That Can Be Invested In Fractionally
  4. How Fractional Real Estate Investing Works
  5. Difference between fractional ownership, REITs and SM RIETS
  6. Legal Framework and Regulations
  7. Benefits of Fractional Real Estate Investment
  8. Risks and Considerations
  9. Tips for First-Time Investors
  10. Frequently Asked Questions

1. What is Fractional Ownership?

Fractional ownership is an investment structure where multiple investors collectively own a percentage share of a high-value asset. Unlike traditional ownership, where one individual or entity owns the entire asset, fractional ownership allows multiple parties to share the costs, benefits, and responsibilities associated with owning and maintaining the asset.

Example: Consider a commercial property valued at ₹10 crores. If ten investors each contribute ₹1 crore, they each own 10% of the property. These investors share in the rental income generated by the property, and if the property is sold, they receive 10% of the sale proceeds. This model allows individuals to invest in high-value assets without needing to bear the full cost, spreading both risk and rewards among the co-owners.

2. Evolution of Fractional Investing

Fractional investing has evolved significantly over the past decade, driven by the increasing demand for alternative investments and the rapid growth of the real estate sector. 

Here’s a brief timeline of its evolution (with a focus on India):

Early 2010s: The concept of fractional ownership began gaining traction globally, primarily in the U.S. real estate market, with early adopters exploring ways to pool resources to invest in high-value properties.

Mid-2010s: Indian investors started showing interest in fractional ownership, particularly in the luxury real estate segment. However, the concept was still in its nascent stages, with limited awareness and few platforms offering such investment opportunities.

2018-2020: The Indian market saw the launch of platforms dedicated to fractional ownership. These platforms began to popularise the concept, offering fractional investments in commercial properties and other asset classes.

2020-2021: The COVID-19 pandemic accelerated the shift towards fractional ownership as investors sought stable, income-generating assets amid market volatility. Since then, the Indian market has witnessed a surge in new entrants, heightened investor interest, and improved regulatory clarity, positioning fractional investing as a mainstream wealth-building strategy. 

2024: The Securities and Exchange Board of India (SEBI) has recently approved regulations allowing small and medium real estate investment trusts (SM REITs) to offer fractional ownership opportunities in real estate. This development comes under the SEBI (REITs) Amendment Regulations, 2024, introduced in March. These regulations open new avenues for investors by enabling them to own portions of real estate properties, making real estate investment more accessible and diversified.

3. Assets That Can Be Invested In Fractionally

Here are some assets that one could explore investing is as a fractional owner:

i. Real Estate

Here are a list of real estate assets that can be fractionalised:

a. Residential Properties

Fractional ownership in single-family homes, apartments, and condominiums allows investors to own a portion of high-demand residential properties, generating rental income and benefiting from property appreciation.

b. Commercial Properties 

Investing fractionally in office buildings, shopping malls, and warehouses offers exposure to income-generating commercial real estate, which often provides higher yields compared to residential properties.

c. Vacation Properties

Investors can co-own vacation properties like beachfront villas or mountain cabins earning rental income , and enjoying personal time if the agreement allows for interval ownership privileges

d. Farmland 

Agricultural land, ranches, and vineyards can be owned fractionally, offering both the potential for land appreciation and income from farming operations.

e. Mixed-Use Developments

Buildings that combine residential and commercial units offer diverse income streams and the potential for higher returns due to their multi-functional 

ii. Luxury Items

Here are a list of luxury assets that can be fractionalised:

Two investors flying together i their fractionally owned private jet.

a. Yachts 

High-end sailing yachts and motor yachts can be owned fractionally, allowing investors to share the costs of ownership and maintenance while enjoying access to luxury boating experiences.

b. Private Jets

Fractional ownership in business jets or light jets provides investors with access to private air travel, with shared costs making it more affordable.

c. Exotic Cars

Supercars, vintage cars, and luxury sedans can be owned fractionally, giving investors the thrill of owning a high-end vehicle without bearing the full cost.

d. Jewellery

High-value jewellery pieces, rare gemstones, and designer collections can be owned fractionally, offering a unique investment opportunity in the luxury goods market.

e. Art Collections: Paintings, sculptures, digital art (NFTs)

Investors can co-own valuable paintings, sculptures, and even digital art (NFTs), benefiting from the appreciation of these assets over time.

iii. Business Ventures

Here are a list of business venture assets that can be fractionalised:

a. Startups

Fractional investments in tech companies, biotech firms, and app developers allow investors to gain exposure to high-growth sectors with significant upside potential.

b. Small Businesses

Restaurants, retail stores, and service providers can be funded through fractional ownership, enabling investors to share in the profits of successful small businesses.

c. Franchises

Investors can own a share in franchises like fast-food chains or fitness centres, benefiting from the established brand and business model.

d. Renewable Energy Projects

Solar farms, wind turbines, and hydroelectric plants offer fractional ownership opportunities in sustainable energy projects with long-term income potential.

e. Film Productions

Investors can participate in the funding of movie projects, TV series, or documentaries, sharing in the profits from successful productions.

iv. Sports and Entertainment

Here are a list of assets in the sports and entertainment space that can be fractionalised:

a. Sports Teams

Fractional ownership in professional teams, minor league teams, or esports teams allows investors to be part of the sports industry and share in the revenue generated.

b. Event Venues

Stadiums, arenas, and concert halls can be owned fractionally, providing income from events and long-term appreciation of the venue’s value.

c. Music Royalties

Investors can own a share of royalties from popular songs, albums, or music catalogues, earning passive income as the music is streamed or played.

d. Film and TV Royalties

Fractional ownership in box office hits, TV shows, or streaming content provides a steady income stream from royalties.

e. Sports Facilities

Golf courses, tennis clubs, and sports academies offer fractional ownership opportunities, with investors earning income from memberships and events.

v. Collectibles

Here are a list of collectible items that can be fractionalised:

a. Fine Art

Masterpieces, contemporary art, and limited editions can be owned fractionally, allowing investors to diversify their portfolios with valuable and appreciating assets.

A fractionally owned wine cellar with premium wines.

b. Wine Collections

Rare wines, vintage bottles, and wine futures can be owned fractionally, offering both enjoyment and potential appreciation in value.

c. Antiques

Furniture, historical artefacts, and rare books can be co-owned, providing a unique investment opportunity in the collectibles market.

d. Coins and Stamps

Rare coins, historical stamps, and limited editions offer fractional ownership opportunities in highly collectible and often appreciating assets.

e. Classic Cars

Iconic models, restored vehicles, and rare finds can be owned fractionally, allowing investors to participate in the classic car market without the full cost burden.

4. How Fractional Real Estate Investing Works

As aforesaid, fractional real estate investing allows multiple investors to co-own a property, sharing the costs, risks, and rewards. Here’s how it works:

i. Pooling Resources

Investors pool their funds to purchase a property, with each investor owning a fractional share based on their contribution.

ii. Ownership Structure 

The property is typically owned by a legal entity, such as a Limited Liability Partnership (LLP) or a Private Limited (Pvt. Ltd.) company, with investors holding shares in the entity.

Fact: WiseX’s SPVs are structured as Private Limited (Pvt. Ltd.) companies, providing a robust and secure ownership framework for investors.

iii. Income Generation

The property generates rental income, which is distributed among investors in proportion to their ownership share. Investors also benefit from any capital appreciation when the property is sold.

iv. Exit Strategy

Investors can sell their shares through a secondary market or wait for the property to be sold, with the proceeds distributed among the co-owners.

v. Data on Returns 

Fractional real estate investments in India have historically provided annual returns of 7-10% from rental income and 4-8% capital appreciation, though actual returns can vary based on market conditions and the quality of the property.

5. Difference between Real Estate Fractional Ownership, REITs and SM REITs

While fractional ownership in real estate, Real Estate Investment Trusts (REITs), and SM REITs offer ways to invest in real estate, they differ in structure and operation:

FeaturesFractional Ownership (Real Estate)REITsSM REITs
Property TypeTypically preferred for Commercial Real EstateMix of Residential and Commercial PropertiesBoth allowed.
Investment ApproachFocused approach on a specific propertyOwns multiple propertiesFocused approach on a specific property
Minimum Investor Ticket Size₹25 Lacs amongst reputed platforms₹300₹10 Lakhs
Underlying AssetsSpecific propertyPortfolio of multiple commercial and/or residential propertiesSpecific property
RegulationsCompanies ActReal Estate Investment Trusts Regulations 2014SM REIT(s) Chapter introduced in the REIT(s) act in March, 2024.
Existing Fractional Ownership Platforms (FOP) to migrate here. 
Offer SizeNo such limit.
Typically FOPs are offering properties ranging from ₹30-100 Cr		₹500 Cr or aboveBetween ₹50-500 Cr
Framework PopularityPopular since 2020’s1st REIT got listed in 2019Only a few regulated trusts operate since the introduction of the regulations.
ReturnsFixed rental income plus expected capital appreciationThe regulations emphasise consistent income distribution but do not specifically guarantee returns through capital appreciationFixed rental income plus expected capital appreciation
Assets’ Development RequirementsInvestments can be made in properties at any stage of development.Minimum of 80% of the value of the REIT’s assets must be invested in completed and rent-yielding propertiesSM REITs to invest 95% of their investments in rent-yielding developed properties

6. Legal Framework and Regulations

The legal framework for fractional ownership in India is evolving, with key regulations covering the following areas:

  • Real Estate (Regulation and Development) Act, 2016 (RERA): Ensures transparency and protects investors’ interests in real estate transactions, including fractional ownership.
  • SEBI Regulations: The Securities and Exchange Board of India (SEBI) regulates platforms offering fractional ownership, ensuring compliance with securities laws. The introduction of Small and Medium REITs (SM REITs) in March 2024 is an amendment to the existing REIT regulations. This amendment focuses on fractional ownership in assets valued between ₹50 crore and ₹500 crore. Additionally, under these regulations, 95% of all assets under management must be invested in revenue-generating properties. Learn more about the framework of SM REITs by reading this document, which answers frequently asked questions about SM REITs.
  • Company Law: Legal entities like SPVs (LLPs or Pvt Ltd) are used to structure fractional ownership, governed by the Companies Act, 2013.
  • Taxation: Income from fractional ownership is taxed as per the Income Tax Act, 1961, with specific provisions for rental income, capital gains, and dividend distribution.

 7. Benefits of Fractional Real Estate Investment

As an alternative investment opportunity, fractional ownership offers several benefits:

i. Affordability

  • Lower Capital Requirement: Allows investors to participate in high-value real estate without needing to commit large sums of money.
  • Access to Premium Assets: Provides access to high-end properties that might be otherwise out of reach for individual investors.

ii. Diversification

  • Spread Risk: By investing in fractions of multiple properties, investors can reduce the risk associated with any single property.
  • Asset Variety: Offers opportunities to invest in different types of real estate, such as commercial, residential, and mixed-use developments.

iii. Income Generation

  • Rental Income: Investors earn a share of the rental income proportional to their ownership stake, providing a steady income stream. Notably, the rental income from commercial properties is 3-4 times higher than residential rental income and also higher than most bank fixed deposits (FDs).
  • Long-Term Capital Appreciation: There is potential for property value appreciation over time, leading to capital gains upon sale.

iv. Professional Management

  • Experienced Managers: Properties are managed by professionals, ensuring optimal operation and maintenance, which can enhance returns.
  • Hands-Off Investment: Investors do not have to deal with day-to-day property management, reducing the hassle of direct ownership.

v. Capital Appreciation

  • Market Growth: As real estate markets grow, the value of properties and, consequently, fractional shares can increase, offering significant capital appreciation potential.

vi. Liquidity Options

Secondary Market: Some platforms offer secondary markets where investors can sell their shares, providing liquidity even in an otherwise illiquid asset class.

8. Risks and Considerations

Here are a few factors for you to consider prior to diversifying your investment portfolio with fractional ownership opportunities:

i. Market Risk

  • Property Value Fluctuations: Real estate markets can be volatile, and property values may decrease, impacting the value of your investment.
  • Economic Factors: Broader economic conditions, such as inflation, interest rates, and economic downturns, can affect real estate values and rental income.

ii. Liquidity Risk

  • Difficulty in Selling Shares: Fractional shares may be harder to sell, especially if there is no active secondary market or during market downturns.
  • Long-Term Commitment: Investors may be locked into an investment for a significant period, limiting access to their capital.

iii. Management Risk

  • Dependence on Management Quality: The success of the investment heavily depends on the property management team. Poor management can lead to lower returns and property value depreciation.

iv. Management Fees

  • Ongoing management and maintenance fees can eat into profits, especially if the property underperforms.

v. Regulatory Risk

  • Changing Regulations: Real estate and investment regulations can change, potentially affecting the profitability and legality of fractional ownership structures.
  • Compliance Costs: Ensuring compliance with local laws and regulations can add to the costs and complexity of managing fractional ownership.

vi. Co-Ownership Conflicts

  • Disagreements Among Owners: Conflicts between co-owners regarding property management, selling decisions, or other issues can complicate the investment. However, the voting rights granted to each investor ensure that decisions, including selling the property, are made based on a 75% majority. This democratic process allows for fair resolution of disputes and empowers investors to make collective decisions efficiently.
  • Decision-Making Delays: Collective decision-making processes can be slow, leading to missed opportunities or delayed actions. Nonetheless, the structured voting mechanism helps streamline these processes, ensuring that the majority’s preference guides actions and mitigates prolonged indecision.

9. Tips for First-Time Investors

Here are a few actionables tips for first-time investors:

i. Research Thoroughly

  • Understand the Property: Investigate the property’s location, market conditions, and potential for rental income and appreciation.
  • Platform Credibility: Choose a reputable fractional ownership platform with a strong track record and transparent operations.
  • Legal Structure: Ensure you understand the ownership structure, your rights, and any legal obligations involved.

ii. Start Small

  • Test the Waters: Begin with a smaller investment to gain experience and understanding of how fractional ownership works before committing larger amounts.
  • Learn the Process: Use your initial investment as a learning opportunity to understand the mechanics of fractional ownership, including management fees, income distribution, and exit strategies.

iii. Diversify

  • Spread Investments: Diversify your investments across different properties or asset classes to reduce risk and improve potential returns.
  • Balance Portfolio: Consider balancing your portfolio with other types of investments (e.g., stocks, bonds) to mitigate risks associated with real estate.

iv. Understand the Legalities

  • Review Contracts: Carefully read and understand all contracts and agreements, including details about management fees, income distribution, and exit options.
  • Seek Professional Advice: Consult with a financial advisor or legal professional to ensure you fully understand the implications of your investment.
Investors monitoring performance of their fractional ownership investments using their investor dashboard.

 v. Monitor Performance

  • Regular Reviews: Regularly check the performance of your investment, including rental income, property management efficiency, and market conditions.
  • Stay Informed: Keep abreast of market trends and any changes in regulations that could impact your investment.

vi. Plan Your Exit Strategy

  • Understand Exit Options: Familiarise yourself with the process and options for selling your fractional share, including any secondary market opportunities that may be available.
  • Long-Term Perspective: While it’s important to have a long-term investment horizon, it’s also crucial to be aware of the potential challenges of exiting early. However, having a well-thought-out exit strategy can help you navigate these challenges more effectively.

Learn more: How to Plan Commercial Property Investment?

10. Frequently Asked Questions

Here are answers to some of the most frequently asked questions:

Q.1. What is fractional ownership meaning?

Fractional ownership is a method of owning a percentage or “fraction” of an asset rather than owning it outright. This model is common in high-value assets like real estate, where multiple investors pool their resources to purchase a property. Each investor holds a fractional share of the asset, entitling them to a proportionate share of the income generated by the property and any capital appreciation. Fractional ownership offers an affordable way to invest in expensive assets while spreading the risks and responsibilities among multiple owners.

Q.2. How do I choose a reliable fractional ownership platform in India?

To choose a reliable fractional ownership platform in India, consider the following factors:

  1. Regulation and Licensing: Ensure the platform is registered with appropriate regulatory bodies, ensuring it operates within the legal framework.
  2. Transparency: Look for platforms that provide clear information on fees, property details, ownership structure, and the rights of investors.
  3. Track Record: Research the platform’s history, including past projects, investor reviews, and overall reputation in the market.
  4. Management Team: Evaluate the experience and credibility of the platform’s management team in real estate and investment management.
  5. Legal Structure: Understand the legal structure of ownership and how the platform handles investor rights and obligations.

Q.3. Is fractional real estate a good investment?

Fractional real estate can be a good investment for those looking to diversify their portfolio, gain exposure to high-value assets, and generate passive income. It offers the benefits of real estate investment without the need for a large capital outlay. However, like any investment, it comes with risks, including market fluctuations, liquidity concerns, and potential management issues. Investors should thoroughly research and consider their risk tolerance before investing.

Q.4. How is the re-sale of fractional ownership handled?

The resale of fractional ownership can be complex and varies depending on the platform and asset. Some platforms offer a secondary market where investors can list their fractional shares for sale to other investors. However, liquidity can be a challenge, as the market for fractional shares may not be as active as for whole properties, potentially leading to delays in selling or a lower-than-expected sale price. At WiseX, investors wishing to exit their investment early are provided with assistance in finding buyers through the secondary market at no additional cost.  

Q.5. Can fractional ownership apply to any purchase?

Fractional ownership is most commonly applied to high-value assets like real estate, luxury goods (e.g., yachts, private jets), and sometimes even artworks. While the concept can theoretically be applied to any asset, it is most effective when used for items that are expensive and typically beyond the reach of a single buyer. The key is that the asset must be divisible in a way that each fraction holds value and can be effectively managed and shared among owners.

Q.6. What responsibilities do you have as a fractional owner?

As a fractional owner, your responsibilities typically include:

  1. Financial Contributions: Paying your share of maintenance fees, taxes, insurance, and other ongoing costs associated with the asset.
  2. Decision Making: Participating in key decisions related to the management or sale of the asset, often in coordination with other co-owners.
  3. Adherence to Agreements: Following the terms of the ownership agreement, which may include rules around the use, sale, or leasing of the asset.
  4. Property Management: Depending on the arrangement, you may have a say in how the property is managed, or this may be handled entirely by a third-party manager.

Q.7. How does fractional ownership work for WiseX?

At WiseX, fractional ownership allows investors to purchase shares in high-value assets, such as premium commercial real estate, at a fraction of the full cost. These identified properties are pre-leased to blue-chip companies, ensuring stable and reliable rental income. Investors pool their funds to acquire the property, and each investor owns a proportional share based on their investment. WiseX handles the management of the property, including maintenance, tenant management, and income distribution. Investors earn returns from rental income and potential property appreciation, with the flexibility to sell their shares through WiseX’s platform or in a secondary market.

Q.8. Is fractional ownership safe?

Fractional ownership can be safe if the investment is made through a reputable and transparent platform that adheres to legal and regulatory standards. However, it is important to recognize the inherent risks, including market volatility, liquidity challenges, and management quality. Conducting thorough due diligence on the platform, understanding the legal structure, and being aware of potential risks can help mitigate safety concerns.

Q.9. Can I sell my fractional ownership?

Yes, you can sell your fractional ownership, but the process and ease of sale depend on the platform and the asset. Some platforms offer a secondary market where you can list your shares for sale to other investors. Alternatively, you may need to find a buyer on your own or wait for the platform to facilitate a sale. Liquidity can be an issue, and the time it takes to sell your shares may vary.

Bottom Line

Now that you are familiar with the intricacies associated with fractional ownership investments, here are some additional resources that will help you in diversifying your portfolio:

  1. Take a look at WiseX’s commercial real estate fractional ownership opportunities.
  2. Book a call with a dedicated investment manager to learn more about the opportunities available.

Explore our articles on numerous subjects related to alternative investments.

A Comprehensive Guide to Planning Commercial Property Investment

July 19, 2024
Mohit Bali
Alternative Investments, Commercial Real Estate, Fractional Ownership
Add comment
Real estate investors assessing the commercial real estate property
10 minutes read

Discover the essentials of investing in commercial properties. Learn the types, benefits, risks, and steps involved in making informed decisions for a profitable investment.

Are you looking to diversify your investment portfolio and are in the market for a commercial property investment? According to a recent report by Mordor intelligence, ”The India Commercial Real Estate Market size is estimated at USD 40.71 billion in 2024, and is expected to reach USD 106.05 billion by 2029, growing at a CAGR of 21.10% during the forecast period (2024-2029).”

This comprehensive guide has been written to address all potential queries an investor may have regarding investing in commercial real estate – pros and cons, due diligence, steps to investing in commercial real estate and much more.

Contents:

  1. What are Commercial Properties?
  2. Why Should You Invest In Commercial Properties?
  3. Potential Drawbacks of Investing in Commercial Properties
  4. Things to Keep In Mind Before Investing in a Commercial Property
  5. Commercial Real Estate Investments VS Other Investment Assets
  6. Steps to Invest in Commercial Real Estate
  7. Investing in Commercial Real Estate with WiseX 
  8. Bottom Line

1. What are Commercial Properties?

Commercial properties are real estate assets used exclusively for business purposes. These properties generate income through leasing or renting out space to various types of businesses. The different types of commercial properties include:

i. Workspaces

Workspaces, or office buildings, are designed for businesses to conduct their operations. They range from single-tenant buildings to multi-tenant high-rises. Office spaces are often categorised into Class A, B, or C based on their quality, location, and amenities.
Wish to invest in high rental commercial real estate? Sign up and take a look at the investment opportunities currently being offered.

ii. Warehouses and Manufacturing Plants

Warehouses are large storage spaces used by businesses to store goods and inventory. Manufacturing plants are industrial facilities where goods are produced. These properties are essential for logistics and supply chain operations.

iii. Malls and Shopping Centers

These are retail complexes where multiple stores and businesses operate under one roof. They include large shopping malls, strip malls, and retail parks. They attract a high volume of foot traffic and are located in prime areas.

iv. Production Facilities

These are specialised properties used for the mass production of goods. They include factories and assembly plants, which are equipped with heavy machinery and equipment necessary for manufacturing processes.

v. Lodging and Dining Establishments

This category includes hotels, motels, restaurants, and cafes. These properties cater to travellers and diners, providing lodging and food services. They are typically located in commercial districts and tourist areas.

vi. Medical Facilities

Medical facilities include hospitals, clinics, and medical offices. These properties are designed to meet the specific needs of healthcare providers, offering spaces for patient care, surgeries, and consultations.

vii. Stores

Standalone retail outlets or small shops fall under this category. They can be anything from a single store in a local neighbourhood to a chain store in a high-traffic area.

viii. Multi-purpose Properties 

These properties serve more than one commercial purpose. Examples include mixed-use developments that combine office spaces, retail outlets, and residential units in one building. Multi-purpose properties are versatile and cater to diverse business needs.

2. Why Should You Invest In Commercial Properties?

Investing in commercial properties offers numerous advantages, making it an attractive option for investors. Here are the key reasons:

i. Thriving Commercial Industry

According to a recent report by Apeejay Real Estate, “The commercial real estate market in India is expected to grow by 7-8% in 2024, reaching a historic peak”. The commercial real estate sector is continuously growing, driven by increasing demand for office spaces, retail outlets, and industrial facilities. As businesses expand, the need for commercial properties rises, ensuring a robust market.

ii. Excellent Rental Returns

Commercial properties typically offer higher rental yields compared to residential properties. Long-term leases with businesses provide stable and substantial passive income, making it a lucrative investment option. According to our primary research, commercial real estate offers nearly 3X more rental yield than residential real estate.

iii. Steady and High Revenue Source

Commercial properties generate a consistent revenue stream due to long-term leases and reliable tenants. Businesses often sign multi-year leases, ensuring a steady income for property owners.

iv. Simple Management

Professional property management services can handle the day-to-day operations, maintenance, and tenant relations, reducing the burden on investors. This allows for efficient and hassle-free management.

v. Protection Against Inflation

Commercial property leases often include clauses that adjust rents according to inflation rates. This ensures that the rental income keeps pace with inflation, preserving the purchasing power of the investor’s returns.

vi. Investment Diversification

Adding commercial properties to an investment portfolio diversifies risk. Real estate often behaves differently from stocks and bonds, providing a hedge against market volatility and economic downturns.

vii. Top-tier Infrastructure

Commercial properties are usually located in prime areas with excellent infrastructure, including transportation links, utilities, and amenities. This enhances the property’s value and attractiveness to tenants.

viii. Consistent Returns

Commercial real estate investments tend to offer more predictable and consistent returns compared to other investment options. The stability of rental income from businesses contributes to this consistency.

ix. Value Growth

Commercial properties often appreciate in value over time, especially those located in prime areas with high demand. This appreciation can lead to substantial capital gains when the property is sold, further boosting the investor’s returns.

3. Potential Drawbacks of Investing in Commercial Properties

Investing in commercial properties offers numerous benefits, but it is not without its drawbacks. Potential investors must be aware of these challenges to make informed decisions. Below are some disadvantages associated with investing in commercial properties:

i. Demands Extensive Research

Investing in commercial properties requires thorough and comprehensive research. Prospective investors need to analyse market trends, property values, and economic indicators to identify profitable opportunities. Unlike residential real estate, where market conditions are relatively straightforward, commercial real estate markets are complex and vary significantly by location and sector. Failure to conduct adequate research can lead to poor investment choices and financial losses. Keeping abreast of market developments by reading reports and research articles from reputable sources such as JLL, Colliers, and Cushman and Wakefield would be the best way to make an informed investment.

ii. Higher Capital Needed

Commercial real estate investments generally require a substantial amount of capital. The cost of purchasing commercial properties is significantly higher than residential properties, often necessitating large down payments and significant financial reserves. Additionally, ongoing expenses, such as maintenance, property management, and taxes, can be considerable. This high capital requirement can be a barrier to entry for many investors, limiting access to potentially lucrative opportunities.

However, with SEBI’s new regulations issued for Small and medium real estate investment trusts (SM Reits), investing in real estate has become quite economical for the retail investors with investments amounts as low as 25 lakhs.

iii. Costly Loans

Securing financing for commercial properties can be more challenging and expensive compared to residential properties. Commercial real estate loans often come with higher interest rates and stricter lending criteria. Lenders typically require detailed business plans and proof of stable income streams to approve loans.

iv. Economic Uncertainty

Commercial real estate investments are particularly susceptible to economic fluctuations. Economic downturns can lead to decreased demand for commercial spaces, resulting in lower occupancy rates and reduced rental income. During recessions, businesses may downsize or close, further impacting the profitability of commercial properties. Investors must be prepared for the potential volatility in rental income and property values, which can affect their overall return on investment.

v. Tenant Acquisition Challenges

Attracting and retaining tenants in commercial properties can be challenging. Unlike residential properties, where tenants are typically individuals or families, commercial properties rely on businesses, which may have specific requirements and expectations. Securing long-term, reliable tenants is crucial for maintaining steady cash flow. High vacancy rates can significantly impact profitability, as commercial properties may remain unoccupied for extended periods, leading to financial strain on the investor.

4. Things to Keep In Mind Before Investing in a Commercial Property

Investing in commercial property requires careful consideration of several factors to ensure a profitable and sustainable investment. Here are some key aspects to keep in mind:

i. Site Location

The location of a commercial property is paramount to its success. A prime location can attract high-quality tenants and ensure a steady stream of rental income. Investors should evaluate the property’s proximity to major transportation hubs, accessibility, visibility, and the surrounding area’s economic activity. Locations in thriving business districts or areas with planned future developments often provide better returns. Additionally, understanding local zoning laws and regulations is crucial to ensure the intended use of the property is permissible.

A developed commercial complex with multiple offices.

ii. Sufficient Amenities

The availability of amenities can significantly influence the attractiveness of a commercial property to potential tenants. Essential amenities may include parking facilities, security systems, and access to public transportation. Depending on the type of commercial property, additional amenities such as conference rooms, high-speed internet, and fitness centres can add value. Investors should consider the needs of their target tenants and ensure the property offers amenities that meet those requirements, enhancing tenant satisfaction and retention.

iii. Lease Arrangement

The structure and terms of lease agreements are critical components of commercial property investment. Investors should carefully review the lease duration, rental rates, and escalation clauses. Long-term leases with reliable tenants provide stability and predictable income, whereas shorter leases might offer flexibility but come with higher risk. It’s also important to understand the tenant’s business model and financial health to assess their ability to meet lease obligations. Additionally, including clauses that allow for rent adjustments based on market conditions can protect against inflation and economic fluctuations.

iv. Expansion Potential

Considering the future expansion potential of a commercial property can add significant value to the investment. Investors should evaluate whether the property has room for physical expansion or if there are possibilities for increasing rental income through renovations or improvements. Properties with adaptable layouts that can accommodate various business types offer greater flexibility and resilience to market changes. Evaluating the long-term growth prospects of the location and the property itself can provide insights into future profitability and the ability to attract diverse tenants.

5. How Does Commercial Real Estate Investments Perform Against Other Investment Assets

MetricsCommercial Real EstateResidential Real EstateSIPs/Mutual FundsBondsGold
ReturnsHighModerateVariesLowVaries
RiskModerateLowVariesLowModerate
VolatilityModerateLowHighLowHigh
Ticket SizeHighModerateLowLowLow
LiquidityModerateHighHighHighHigh

Learn more: How Is Fractional Ownership Better Than Stocks?

6. Steps to Invest in Commercial Real Estate

Investing in commercial real estate is a structured process that involves several critical steps. Here’s a comprehensive guide to help you navigate the process effectively:

i. Establish Your Investment Objective and Plan

The first step in investing in commercial real estate is to define your investment objectives. Determine whether you are seeking short-term gains through property flipping, long-term income through rental yields, or value appreciation over time. Establishing clear objectives will guide your investment strategy and decision-making process. Develop a detailed plan outlining your budget, risk tolerance, target property types, and expected returns.

ii. Investigate Potential Markets and Properties

Once your objectives are set, research potential markets and properties. Analyse market trends, economic indicators, and demographic data to identify regions with growth potential. Consider factors such as employment rates, population growth, and infrastructure development. Investigate specific properties that align with your investment criteria, evaluating their location, condition, tenant mix, and income potential. Engaging with local real estate agents and attending industry events can provide valuable insights and opportunities.

iii. Secure Suitable Financing

Securing financing is a critical step in the investment process. Explore various financing options, including traditional bank loans, commercial mortgages, and private lenders. Compare interest rates, loan terms, and eligibility criteria to find the most suitable financing solution for your investment. Prepare a comprehensive business plan and financial projections to present to potential lenders. Ensure that you have sufficient capital for down payments, closing costs, and initial expenses.

iv. Propose and Negotiate Conditions

Once you identify a promising property, submit a formal offer to the seller. This proposal should include the purchase price, proposed terms, and contingencies. Negotiation is a crucial aspect of this step, as it can significantly impact the final agreement. Work with a real estate attorney to ensure that the contract terms protect your interests and address potential risks. Effective negotiation can lead to favourable terms, such as reduced purchase prices or additional concessions.

v. Perform Due Diligence

Conducting due diligence is essential to verify the property’s condition and financial viability. This process involves inspecting the property, reviewing financial statements, and assessing legal documents. Hire professionals such as property inspectors, appraisers, and environmental consultants to evaluate the property’s physical and environmental status. Analyse lease agreements, tenant history, and operating expenses to ensure the property meets your investment criteria and expectations.

vi. Finalise the Purchase

After completing due diligence and resolving any issues, proceed to finalize the purchase. This step involves signing the purchase agreement, securing financing, and transferring funds. Work with a real estate attorney to ensure all legal and contractual obligations are met. Conduct a final walkthrough of the property to confirm its condition. Once all documents are signed and funds are transferred, the property ownership is officially transferred to you.

vii. Oversee the Investment

Managing and overseeing your commercial real estate investment is crucial for achieving long-term success. Develop a comprehensive property management plan to ensure smooth operations and tenant satisfaction. This plan should include regular maintenance, rent collection, and tenant communication strategies. Monitor market trends and property performance to make informed decisions about lease renewals, rent adjustments, and potential property improvements. Engaging a professional property management company can help streamline operations and enhance the property’s value.

7. Investing in Commercial Real Estate with WiseX

WiseX simplifies the process of investing in commercial real estate by addressing common pain points such as extensive research by conducting thorough due diligence, high capital requirements by offering a relatively economical ticket size, and tenant acquisition challenges by ensuring the lease agreement is ironclad. Our platform offers a curated selection of high-quality properties, accessible investment amounts, and comprehensive due diligence reports. Additionally, WiseX provides professional property management services and a seamless investment process, ensuring a hassle-free experience for investors.

Step 1: Property Selection

Begin by browsing through a diverse range of properties across various locations to identify one that aligns with your investment strategy. Evaluate each property based on factors such as location, market potential, and suitability for your investment goals.

Step 2: Review Investment Details

Once you have selected a property, review the available details, including its valuation, available shares, and price per share. Determine your investment amount based on your budget and risk tolerance, ensuring it aligns with your overall investment plan.

Step 3: Complete KYC and Confirm Investment

Complete the Know Your Customer (KYC) documentation online to verify your identity. Confirm your investment amount with the assistance of your dedicated investment manager, who will guide you through the process and address any queries you may have.

Step 4: Sign EOI and Deposit Initial Investment

After confirming your investment, sign an Expression of Interest (EOI) document. Deposit 5% of your investment amount into an Escrow account, which secures your investment opportunity and demonstrates your commitment.

Step 5: Complete the Investment Procedure

When the investment opportunity reaches full commitment, you will be notified to submit the remaining 95% of your investment amount. This step completes your financial commitment to the investment post which your rental income will begin to accrue.

Step 6: Documentation and Returns

Upon completing these steps, WiseX will initiate the documentation process to finalise your investment. Once your investment is successfully finalised, you will begin receiving returns on a monthly basis, in accordance with the terms of the investment agreement.

Learn more: Advantages of Investing With WiseX

8. Bottom Line

Now that you are aware of the benefits and drawbacks associated with commercial property investments, here are some additional resources that will help you in diversifying your portfolio:

  1. Take a look at WiseX’s commercial real estate fractional ownership opportunities.
  2. Book a call with a dedicated investment manager to learn more about the opportunities available.
  3. Explore our articles on numerous subjects related to alternative investments.

Passive Income Using Fractional Ownership of Commercial Real Estate

June 12, 2024
Sahiba Neeru
Fractional Ownership
Passive Income Using Fractional Ownership of Commercial Real Estate
3 minutes read

Fractional ownership involves multiple investors pooling their funds to buy shares in a property through a Special Purpose Vehicle (SPV). This SPV acquires the property, and investors earn returns proportionate to their share of ownership. The property could be anything from a commercial property to a residential estate. This investment avenue allows you to earn income from real estate without the hefty upfront costs of sole ownership, thereby making it accessible to retail investors. 

Let us go through this blog to understand how you can earn passive income using fractional ownership.

What Are the Different Types of Commercial Real Estate?

The following mentions the different types of commercial real estate via which you can earn passive income:

i. Office Buildings

Office buildings fall into 2 main types: urban and suburban. Urban office buildings are usually found in cities and include high-rise properties and skyscrapers. Suburban office buildings are generally smaller and often situated in office parks.

ii. Retail Spaces

Retail spaces are commercial areas where retailers and restaurants operate. These can be multi-tenant buildings, often anchored by a major tenant to attract traffic or single-use, standalone buildings.

iii. Industrial Properties

Industrial properties vary widely based on their purpose and size. They can be used for storage or as workplaces for various businesses. Generally, these properties are found in low-rise buildings in urban areas or industrial parks. Warehouses, cold storage, research facilities and showrooms are some types of industrial properties.

iv. Hospitality Properties

Hospitality properties offer significant investment potential. These properties serve travellers, providing temporary or short-term accommodations, lodging, entertainment and dining. Hospitality properties include boutique hotels, resorts, short-term rentals and more.

How to Earn Passive Income from Fractional Ownership?

There are various ways to earn passive income, but one of the easiest ways to do so is through a fractional ownership real estate investment platform. Follow the steps mentioned below to start your investment:

Step 1: Determine whether you want to invest in commercial or residential property.  

Step 2: After deciding, research properly and select a platform that offers fractional ownership investment opportunities by looking at their past records, regulatory compliance, and more. 

Step 3: Explore the different opportunities offered and evaluate the details like the value of the property, available shares, price per share, tenant profile, tenancy terms, rental yield, the platform’s credibility, and more.

Step 4: Complete your KYC process, sign the EOI (Expression of Interest), and deposit 5-10% of your investment amount in the Escrow account. It will help in securing your slot in the investment opportunity. 

Step 5: Once your investment opportunity reaches full commitment, you will have to pay the remaining 95-90% of your investment during the drawdown period. After this, sign the private placement and offer documents.Now you will be able to track your investment on the dashboard of the platform and enjoy the monthly returns as one of the benefits.

Now you will be able to track your investment on the dashboard of the platform and enjoy the monthly returns as one of the benefits.  

Is Fractional Real Estate Ownership a Good Investment?

Fractional ownership is considered a reliable investment for the following reasons:

  • It eliminates the barriers related to real estate investment, like capital risk and the high capital requirement.
  • Fractional ownership allows you to participate in real estate investment, earn high returns, and get the benefits of the rising property value of A-grade commercial or residential real estate. 
  • It allows you to invest in new asset classes and helps you diversify your investment portfolio. 

The Bottom Line

Earning passive income using fractional ownership is a smart investment choice. With this approach, you can access high-value commercial properties, enjoy consistent rental returns, and diversify your investment portfolio without hefty upfront costs. It is a great way to grow your wealth while minimising risks associated with traditional real estate investments.

Thus, if you want to avail this opportunity, consider Aurum WiseX as your fractional ownership guide. With our investment platform, you can earn monthly rentals of up to 10% and earn gains from capital appreciation.

Note: All information and/or data from external sources is believed to be accurate as of the date of publication. Note: All information and/or data from external sources is believed to be accurate as of the date of publication.

How Is Fractional Ownership Better Than Stocks?

May 15, 2024
Sahiba Neeru
Fractional Ownership, Personal Finance and Investments
3 minutes read

When it comes to investment, people are drawn to a diverse array of investment options, ranging from traditional stocks to innovative avenues like fractional property ownership. 

While stocks have long been a popular choice, fractional ownership investment presents a unique opportunity to benefit from real estate assets in smaller portions. This appeals to a wide range of investors, from experienced individuals seeking to diversify their portfolios to affluent newcomers looking for alternative avenues.

In this blog, we will walk you through why fractional ownership is better than stocks in today’s financial landscape. 

What Is Fractional Ownership?

In fractional ownership, various investors come together and pool their money to buy top-quality commercial or residential real estate. Each investor gets a certain portion of the equities of the Special Purpose Vehicle (SPV) that owns the property, granting them a proportional stake in ownership. This collaborative method makes investing in sizable properties achievable for a broader range of participants.

Advantages of Fractional Ownership

Following are some of the benefits of fractional ownership that make it a smart investment choice for you:

  • Access to High-Value Properties

It enables you to invest in high-quality real estate properties that might have been financially out of reach through traditional ownership. This means you can own a portion of equities of the SPV, holding property such as office buildings, retail spaces or industrial warehouses in desirable locations, giving you exposure to valuable real estate assets.

  • Lower Investment Costs

Fractional ownership reduces the capital required to invest in real estate. Instead of buying an entire property, you can invest in a fraction or a share of it, making it more accessible for investors with smaller budgets.

  • Professional Management

Many fractional ownership platforms partner with professional property management services, specifically tailored for commercial real estate. These services handle tasks such as tenant leasing, property maintenance and asset optimisation, ensuring that the property is well-managed and maximising its potential for rental income or resale value.

  • Flexibility and Easy Selling

With fractional ownership, you have the flexibility to sell your share in the property if you want to cash out. This gives you the freedom to adjust your investment strategy, refine your portfolio or take advantage of changes in the market.

How Is Fractional Ownership Better Than Stocks?

Fractional ownership offers several advantages over traditional stock ownership, making it a compelling option for investors. Here is why you should invest in fractional ownership over stocks:

  • Steady Returns

Stock market earnings rely on market ups and downs, which is highly unpredictable. However, with fractional ownership, returns stay stable over time. Furthermore, fractional ownership lets investors put money into top-notch properties leased to big companies. Long lease deals mean investors get a steady stream of rental income.

  • Multiple Benefits

Fractional ownership comes with multiple perks, including income from monthly rent and asset value growth when selling. This unique blend of income stream and capital appreciation distinguishes it as a superior investment choice compared to stocks.

  • Smart Research

When investing in the stock market, you usually spend a lot of time researching companies. However, with fractional ownership, real estate experts handle the research, ensuring good property deals. Properties listed for fractional ownership go through a strict evaluation to guarantee high returns.

  • Diverse Opportunities

Diversification is another perk of fractional ownership. Unlike stocks, where all investments are tied to market trends, fractional ownership lets you spread your money across different properties in various places and sectors, reducing overall risk.

The Bottom Line

Overall, fractional ownership is considered better than stocks by several expert investors due to its ability to provide stable returns, in terms of consistent rental income and potential asset value growth. Fractional investment in real estate allows diversification across various properties and sectors, reducing overall investment risk. Moreover, the research process associated with fractional ownership is streamlined, thanks to expert inputs. 

Speaking of experts, Aurum WiseX is one of the trusted investment platforms offering fractional ownership opportunities. Therefore, if you are looking for a smarter investment option, fractional ownership through Aurum WiseX could be the way to go.

Frequently Asked Questions
  1. Which investment option has more risk fractional ownership or stock?

Fractional ownership in real estate and stocks both carry risks. However, the level of risk for fractional ownership investments depends on factors such as market fluctuations,  property management challenges, and legal complexities, while stocks face volatility, economic factors, and global events.

  1. How does fractional ownership work?

In fractional ownership, investors contribute funds to purchase a share of the SPV owning the real estate asset. Each investor holds a proportional stake in the asset and receives benefits such as rental income according to their ownership percentage.

  1. What are some of the benefits investors can expect from fractional ownership?

With fractional ownership, you will be able to invest in top A-grade properties with an affordable investment amount. Furthermore, you will be able to earn monthly rental income and leverage potential capital appreciation upon the sale of the asset.

How to Plan Commercial Property Investment?

May 6, 2024
Sahiba Neeru
Fractional Ownership
1 Comment
Commercial Property Investment
3 minutes read

If you are seeking different ways to broaden your financial portfolio and aiming to build lasting wealth, consider commercial property investment as a lucrative avenue to achieve your financial goals.  Commercial real estate comprises properties which are used for various business purposes, such as office spaces, industrial warehouses, retail centres, multifamily apartments, hotels and more. Unlike market-linked instruments, this investment avenue is a stable source of income even during volatile market conditions. 

So, if you are someone looking forward to investing in commercial real estate property, keep reading this blog. 

How to Invest in Commercial Property?

The commercial property investment process involves the following steps. Take a look. 

Step 1: Understand Your Investment Goal

First, you must determine what you want to achieve through your investment in commercial real estate. Understanding your investment goals in commercial real estate involves considering several crucial factors. Here are the key things to know before investing in commercial real estate property:

  • Property Type 

In the commercial property market, you have options like office buildings, warehouses and retail spaces. Currently, office space properties are often seen as a preferable choice among investors because they tend to yield an average yearly return of 8% to 10%. Properties are divided into prime (in big cities with top tenants), secondary (in less central areas) and tertiary (in outskirts with limited tenants).

  • Location

The location of your property is one of the crucial factors to consider. You must make sure there is not too much competition in the area. Additionally, keep an eye on upcoming infrastructure projects that could boost demand.

  • Property Size

Think about how much you can afford and how big of a property you need. Larger properties might be harder to lease and more costly to maintain.

  • Documentation

Check all the legal documents carefully. This includes mortgage papers and ownership transfer documents if you are buying a resale property. It is smart to get help from an agent to understand all the costs involved.

Step 2: Do Proper Research and Analysis

After you have set your criteria and investment goals, you must do thorough research and analysis to find the best property. 

  • Demand and Supply

Check how strong the demand is and how much inventory is available. Look for any oversupply or undersupply of commercial properties in the market.

  • Competition

See who else is in the market and what they are doing. Understand their strengths and weaknesses, how they are pricing properties and attracting tenants.

  • Occupancy and Rent

Verify the occupancy and rent rates in your desired area and compare them with other markets. Monitor if rents are staying the same, going down or rising.

  • Taxes and Expenses

Figure out how much you will spend on operating expenses and taxes. Understand how this affects your cash flow and return on investment.

  • Growth Potential

Analyse demographic and economic factors in your target area. Find out if there are any major infrastructure projects planned. These could change the value and landscape of the area and your property.

Step 3: Evaluate the Financial Metrics

The next step to successful investing is understanding key calculations and formulas. These metrics will help you understand the profitability and performance of your commercial property investments. Here are some important formulas you should know:

  • Net Operating Income (NOI)

This calculation accounts for all revenue and expenses associated with a property, providing you with a clear picture of potential earnings after operating costs like property management fees, repairs, utilities, insurance and taxes.

  • Cap Rate (Capitalization Rate)

The cap rate is used to estimate the value of income-producing properties by comparing the net operating income to the property’s asset value. It helps investors assess the potential return on investment.

  • Internal Rate of Return (IRR)

IRR measures the interest you can make on every rupee you invest in the property throughout its ownership. It shows the potential growth rate the property can achieve and estimates the potential long-term yield.

Step 4: Assess the Deal

Once you have finished researching and analysing the market, it is time to hunt for properties that match your goals. You can use online platforms and property brokers to help you find suitable properties. These resources will pinpoint options based on what you are looking for. Additionally, you can connect with your family, friends, colleagues or business partners for property recommendations. They may know of opportunities that align with your objectives.

Step 5: Negotiate and Make an Offer

Once you have evaluated and shortlisted your preferred properties, you can reach out to the seller or broker to initiate negotiations for purchasing the property.

The Bottom Line

Investing in commercial property is both rewarding and challenging, necessitating preparation, research, negotiation and financing. By adhering to the guidance provided in this blog, you will be able to discover the ideal property that aligns with your objectives. With these insights, you can confidently make informed decisions and pursue successful commercial real estate investments tailored to your needs.

Are you ready to take the next step to diversify your investment portfolio with commercial property investment? If so, look no further! At Aurum WiseX, we offer hassle-free access to top-notch A-grade commercial properties through fractional ownership. Our platform meticulously evaluates over 150+ points to bring you the best commercial properties. 

So, say goodbye to the complexities and uncertainties, and take control of your financial future with confidence with Aurum WiseX!   

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